Re-securitization of Junior ABS Contemplated

Conn.-based Structured Finance Advisors (SFA) is hoping to make a successful turn at putting together a structure secured by junior securitized notes.

If the transaction gets underway as planned, it will be a two-tranche deal secured by at least $100 million in junior notes rated single-A to double-B, with an approximate 70%/30% split between the investment-grade rated tranche and the equity portion respectively, said a source familiar with the company's plans.

SFA has secured investors for the equity portion and is shopping around for a contributor for the junior portfolio, which would also invest in the deal. The company is approaching institutional investors such as pension funds and insurance companies who are not particularly happy with their ABS or MBS holdings.

The transaction appears to represent the type of ABS deals that will be done more frequently, according to sources. Generally speaking, the ABS market is functioning in two major parts: secondary trading of distressed assets and the structuring of transactions that get bought by up to three investors.

"The seeds of the securitization market are returning, because it will take a while," said Joe Lorusso, president and co-founder of SFA, referring to the general state of the ABS market. "Securitization still has a role to play, but it's got to inch its way back."

In terms of the SFA deal, the contributor of the underlying securities would retain the 70% senior note position, the investment grade rated portion of the portfolio.

Buyers who would pick up the 30% equity portion would look for about a 20% IRR, according to SFA's plans. The strategy is similar to that of a transaction that SFA put together in November, a $1 billion deal called Collybus.

"It is working as planned," Lorusso said. "Contributors got their money and got the assets off their balance sheets. They don't have to mark to market and they reinvested the money in the current markets."